What does 'arrears' mean and will it affect my credit file?

'Arrears' is one of those words that sounds far more alarming than it is. In plain English it just means a payment that was due and has not been made — money you were scheduled to pay that has not yet reached us. This article explains what arrears actually are, how they differ from a one-off missed payment or a default, what we report and to whom, and the calm, practical steps to clear them. The headline: talking to us early is always the best move, and asking for help is never treated as a black mark.

What 'arrears' actually means

You are 'in arrears' when a scheduled payment has fallen due and not been paid. It is a description of where the account stands, not a charge or a penalty in itself. The amount in arrears is simply the sum of the payments you have missed and not yet caught up on.

It helps to separate three terms that often get muddled:

A missed single payment

One scheduled payment did not arrive — often a Direct Debit that bounced. On its own this is common and usually quick to fix, and it is the first thing that puts an account into arrears.

Arrears

The running total of payments due but not made. One missed payment puts you a little in arrears; several unaddressed missed payments mean the account is deeper in arrears. It is a balance, not an event.

A default

A formal, later step. A default is recorded only when an account has been in serious arrears for a sustained period and we have been unable to agree a way forward. It is not the same as missing a payment, and it does not happen the moment a payment is late. Crucially, simply telling us you are struggling is never recorded as a default.

So a single missed payment is the start of arrears; a default is a much later and more serious marker that we work hard to avoid with you. Most arrears never become defaults precisely because there is time to put a plan in place.

What we report, and whose credit file it touches

This is the part people worry about most, so let us be precise. We lend to your company — a limited company or LLP — not to you as an individual. The company is the borrower. That has a direct consequence for whose credit file is affected.

What this means in practice:

• Payments made on time build the company's record of good account management with the business agencies.
• Missed payments or arrears may also be reported against the company — which is one more reason to clear them or agree a plan early.
• The identity check we run on the signing director is a verification step to meet our anti-money-laundering obligations. It is not a personal lending search and is not recorded as one.

For the full detail on which agencies we use and exactly what is shared, see what Credicorp shares with business credit reference agencies. And for the wider answer on personal versus company credit, see will applying for a Credicorp loan affect my credit file.

Asking for help is not a default — and an agreed plan is not a missed payment

This matters, so it is worth stating plainly. Getting in touch to say a payment will be late, or to ask about an arrangement, is not reported to credit reference agencies as a default. There is no penalty simply for asking, and reaching out early does not count against you.

Better still, once we agree a way forward, the payments under that arrangement are not treated as missed payments. A repayment arrangement reshapes what you owe into something the business can manage — a reduced-payment plan, a short payment freeze, or a longer hardship variation — and while you keep to it, you are doing exactly what you agreed, not falling behind. See what a repayment arrangement is and how to set one up. The earlier you ask, ideally before a payment is due, the more room there is to help.

What happens, step by step, if a payment is missed

Knowing the sequence takes a lot of the fear out of it. Here it is in brief:

1. The payment doesn't arrive. Most often a Direct Debit bounces. We let you know. The best thing you can do is get in touch, ideally before the due date if you already know it will be tight.
2. A single late fee may apply — and nothing compounds. If a payment is genuinely missed, one late fee may be added for that payment. There is no penalty-rate uplift, and interest does not jump or compound because you fell behind.
3. The cost cap still protects you. The total cost of a single loan stays capped at 100% of what you borrowed — the cap holds through arrears, not just when everything goes to plan.
4. We try to agree a plan, not escalate. If a payment stays unpaid we will try to reach you to understand what is going on and agree a way forward, rather than letting the account drift into deeper arrears.
5. Extra protection if you have told us you need care. If you have asked for extra support, we will not pass your account to a third-party debt collector while that flag is active, and freezes and reduced-payment plans become available without the usual checks.

For the full walkthrough, see what happens, step by step, if a payment is missed.

How to clear arrears or agree an affordable plan

There are two routes out of arrears, and either is fine:

• Clear the arrears. If it was a one-off — a bounced Direct Debit, a timing problem — catching up the missed amount brings the account back on track. Use the Payment Arrangement Request form or get in touch through your portal or by phone.
• Agree an affordable plan. If keeping up has become genuinely difficult, we would much rather reshape the payments than escalate. A reduced-payment plan, a short payment freeze, or a hardship variation can fit the schedule around what the business can manage.

Free, independent debt advice

Sometimes the most useful step is to talk to someone independent and free, who is on your side rather than ours. Two trusted sources:

• Business Debtline — businessdebtline.org, 0800 197 6026. Free, impartial debt advice for small businesses and the self-employed, including help understanding arrears and dealing with business creditors.
• MoneyHelper — moneyhelper.org.uk. Free, government-backed guidance on money and debt, useful where personal and business money worries overlap.

Getting independent advice does not affect how we treat your account, and it often makes an affordable plan easier to agree. If your circumstances mean you need us to do things differently, see how to tell us you need extra support.

See also: A debt collection agency has contacted me - is it genuine?, Can my accountant or another representative deal with you on our behalf?, Can I get a payment extension?.